Silverman on Domino’s Theory

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Harry Silverman is the kind of finance chief who likes to roll up his sleeves and get his hands dirty. The CFO at Domino’s pizza, a privately held business with 2000 revenues of $3.5 billion, Silverman says he likes to get out and see what’s going on at the company’s stores. It’s not real likely he’ll ever get to all of them, however: they’re currently over 7,100 restaurants in the Domino’s network.

Silverman’ career began at accounting firm Grant Thornton, where he spent five years. He then joined Domino’s Pizza in 1985, starting out as an accountant in the company’s Chicago office. A few years later, he made his way to corporate headquarters in Ann Arbor, Michigan. In 1993, Silverman was named CFO — the youngest person to land the top finance post at Domino’s, one of the largest pizza companies in the U.S. In 1998, when founder Thomas Monaghan sold Domino’s to Bain Capital Inc., a private equity and venture capital firm, Silverman was named acting president of the company.

Silverman recently spoke with CFO.com’s Jennifer Caplan about what it’s like to run a franchise-driven business, the importance of operational experience, and the pressure of getting the top finance job at a multibillion company — at the tender age of 34.

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You joined Domino’s in 1985 as an accountant in the company’s regional Chicago office, where you reported to a regional director of operations. Although that job involved finance, you also had to get involved in operations. Is that typical of the way Domino’s develops its finance staff?

I would say it was typical in the Eighties, as the company was growing. Starting in 1991 and 1992 we began consolidating much of the accounting. In the mid- Nineties, we brought it all up to Ann Arbor. When the company was growing like it was — we were building 1000 stores a year in the mid-Eighties — it was critical that we had not only the finance people, but also marketing, HR, and operations people very close to the stores. I think that’s really where you learn the business. From the very beginning, I was meeting with franchisees and store managers in the stores at least a couple times a week.

At 34, you were the youngest manager to land the CFO job at Domino’s. To what do you attribute your rapid rise to the top?

When I came into this business I made a huge effort to really try to understand the fundamentals of the business. I tried to get out into the stores as much as possible and spend all the time I could with the operations people, to really understand what made this business profitable. Domino’s is really an operations driven company. There are a lot of people in high places that don’t spend the time to really figure out what is going on out there.

From day one, I made that a priority for myself. Also, I always felt that to be successful I needed to work harder than anyone who reports to me. You really have to be able to lead by example. I have also been able to build a team that allows me to move away from day-to-day transactional activities, and focus instead on how to make more money for the company, how to work with franchisees, and how to solve problems.

Before you joined Domino’s, the company was not doing well. What was wrong?

In the Eighties, Domino’s was the fastest growing franchise business in America. We got to the point where we were growing so fast, that we probably overgrew in terms of what the company could manage. In the early Nineties, that growth started to slow down, and the actual performance of our stores was not all that great.

Then, [Domino’s founder] Tom Monahan left the company for a couple of years and we started to lose focus on the delivery business. We were trying a lot of different things and were losing sight of our strengths. When Tom came back at the end of 1991, the company had $500 million in debt, we had something like 35 to 40 different banks, our sales had been negative for a couple years. The company was just a mess. We were having trouble meeting our operations and were struggling significantly.

That’s around the time you were named CFO. What was the hardest part for you in helping to turn the company around?

What was so hard was being in my early thirties and being put in a situation where we could have possibly gone into bankruptcy. I had to learn on the fly.

When I came on board, one of the major challenges I faced was communicating with our lenders. From day one I wanted very much to reach a deal with our banks by being as honest and open as possible. Lenders are smart people, so if there is a problem, you’ve got to be able to talk about it.

In 1994, we were able to refinance all our bank deals, and that was really the beginning of our turnaround. Once we were able to get out from under the banks we were able to focus a lot more on the operations, building sales and righting the ship. In August of 1993, when we introduced our thin crust pizza, our sales turned positive again.

Now that the company has been on an upward track for a number of years, what is your biggest challenge as CFO?

It’s very challenging for us to maintain and improve our margins in an environment where price increases are really not an option. It is just such a competitive market out there. A big part of that is process improvement. What can we do in our stores to reduce costs without compromising the quality of our service?

We are really taking a hard look at our priorities and focusing on our overhead, making sure that everything we do is value-added. We have consolidated a lot of our administrative and legal tasks internally. In our stores we continue to focus on improving our computer systems, which help’s us be more efficient. We really try to focus on pinpointing where there is waste in our stores. We also started an incentive plan last year, which included all administrative members of our organization. We have gotten employees to really do everything they possibly can to add to the bottom line.

How do you balance both your finance and operations roles on a daily basis?

What is critical is for me to work as closely as possible with our entire management team. You can’t be in the back office working on financial statements all day. My job is to understand what’s going on in marketing, and how that is going to affect operations, for example, and try to be as objective as possible. You take the CEO’s vision and run with it while working with other members of the management team. I am also very fortunate because I have a tremendous team of people working underneath me, which allows me to take care of the bigger issues.

You were largely responsible for centralizing Domino’s’ finance department. What were the main obstacles you faced, and what have been some of the benefits?

We had a lot of inconsistency in our reporting when I came in. In a rapidly growing company, we really could not afford to be inconsistent with our financial reporting. It was actually not an easy thing to pull off in practice. We ended up getting it down to two or three regional accounting centers and then rolling it up to Ann Arbor in the mid-Nineties. Our costs of doing the bookkeeping and finances went down 50 to 60 percent as a consequence of the consolidation. Our reporting also became much better because it was consistent across regions.

Do you every worry about relying too heavily on a franchise model? Are you ever concerned that the quality of the business might become diluted by having others run the businesses while using your brand?

We have upwards of 1400 franchisees, and 90 percent of our stores are franchises. What makes us a little different than most is that to become a franchisee at Domino’s, you have to be a manager at one of our stores for at least a year. Our franchise model really relies on having operations people running the businesses. We also have store auditors who go out on a daily basis to make sure that the franchisees are following Domino’s standards.

Franchisees can be your biggest critics, but they can also generate the best ideas. I’m sitting here in Ann Arbor, but the franchisees are out there making it happen every day. Any idea that comes up, or if they see something that something works well in their stores, they can provide us with that information. Because franchisees own their own business, they also have that added entrepreneurial sense, and the incentive to want to constantly improve the business. We have an extremely healthy return on investment from our franchisees. That is really the only way to grow a system as quickly as we have.

Domino’s was sold to Bain Capital in 1998. How has different ownership affected Domino’s — and your job?

The marriage with Bain has been great for us. Bain is a very professional venture capital firm with finance and a lot of strategic planning expertise, which has really helped us. We are now a more public company, although we do not issue public equity. We are not followed as much by the analysts, but because we do issue public bonds, we are required to file 10Qs and 10Ks. On a personal note, going through the process of selling the company to Bain was a great learning experience for me as well.